Transitioning to 75¢ and $1
Higher vend prices appear to be at a tipping point. Standard pricing for capsule merchandise has been steadily edging up to the 75¢ and dollar price points, which seem poised to become the "new normal" in bulk vending. This pricing level, formerly explored by the adventurous, and viewed with suspicion by more traditional operators, is quickly becoming commonplace.

photo | NEW GEN: Offered in single-coin format in standard mode, Beaver's New Generation mech has the option to handle multiple coins simultaneously (from two to four) in a stacked configuration. The mech has been widely used by operators who are updating their machines to 75¢ and $1 price points, which in the U.S. requires three or four quarters to turn simultaneously to enable a vend.

"I've been at 75¢ for a good while already, and right now I'm moving from a quarter to 50¢ on 1" toys," said Mickey Mathis of Mickey Mathis Vending LLC (Walnut, MS.). "I started upping the price to 75¢ a couple of years ago. Since then, we've moved the price up a little at a time."

Like many others in the industry, Mathis began his bulk vending price makeover by targeting his most favorable spots for increases. On a route that extends throughout Mississippi, those locations were already the high earners. Over time, the operator became more assertive in his price improvement plan.

"When I set a new rack, it's going to be 75¢ on 2" merchandise and 50¢ for 1" variety," he explained. "I'm gradually weeding out all those that are 50¢ on the 2" and 25¢ on the 1" capsules. It's not worth the time anymore, as much as everything costs."

Mathis points to increased operating costs as the primary motivation for making the change. Gas, he instanced, cost roughly a dollar a gallon in 1991, and a box of gum is now $10 higher than it was 20 years ago. "Those who don't change, in my opinion, are going to be out of business," he said. "If things go on like they're going, you're going to be at $1 on the 2" and 75¢ on the 1" capsules. It's going to keep on and on."

Mathis's strategy, along with his sentiments, is echoed by other operators. Dave Kochan, who runs CK Vending (Norcross, GA), for example, is also boosting his prices in much the same way. "When I put out new equipment, 1" toys are at 50¢ and the 2" is at 75¢ and a $1," he explained. "I will have completely switched over to 75¢ and $1 within a year. But here's one of the challenges: If you have a restaurant where you have a captive audience, it's easier to have a higher vend price. But if you in a lower-income neighborhood, when you raise the price, the products sell a lot slower."

Pricing changes are having an effect throughout the industry. Beaver Machine Corp.'s Heidi Schwarzli has reported increased sales of higher demonination coin mechs for her company's line of machines. "We have seen an uptick in those mechs, for sure," she said. "I would say that it has probably been in the last three or four years, and it's still going strong. Operators are retrofitting for higher price points."

Schwarzli explained that this current upgrading is the result of a mixed bag of strategies. "Some guys are coming in and asking for quantity discounts to switch a significant number of machines," she said. "Others are coming in and doing it little by little. I can't say that one trend is stronger than the other."

Additionally, Beaver has witnessed an increase in machines sold with the higher price-point coin mechanisms. "We are seeing a shift, too, in that people are starting off with a higher price-point," she noted. "And we're guiding them in that direction, because we want them to be successful."

It is not difficult to see what is fueling the move toward higher pricing. As with many business trends, push-and-pull pressures are exerting influence. Pushing operators toward price improvement are higher overhead costs. The price of doing business has simply forced them to raise prices.

photo | AS THE GIRL TURNS: A vast number of vending machines continue to offer 2" merchandise for 50¢, which is becoming increasingly difficult to profit from.

With fuel prices more than tripling in the past two decades, many operators are using the extended time it takes to sell out of a high-priced item as a way to stretch out service call scheduling. For many of these operators, service rotations have been extended from four weeks to six weeks. This strategy is somewhat controversial, since one school of thought maintains that frequent service visits in which merchandise is changed will usually increase sales. The freshness factor, they say, begins to fade after the first month. However, some operators who have extended time between service periods report that the savings in fuel for route vehicles more than makes up for any slowdown in sales in the second half of the product cycle. And, as one industry professional noted, some operators have taken this to the extreme, even postponing calls to fix broken or vandalized machines until they can be handled on the next scheduled service stop.

Another "push pressure" weighing on operators is increased product cost. "When you talk about merchandise costs, you're talking about capsule fabrication, labor and transportation -- and labor costs have increased in China and domestically," said A&A Global's Phil Brilliant. "Never mind that the cost of the toy has gone up, as well."

These increased costs have squeezed suppliers over the past several years. Trying to hold costs down to a level that makes a 50¢ vend price viable has been a Herculean task. Just as operators have seen their profit margins squeezed razor-thin, suppliers have also felt the pressure.

For operators and suppliers, the logical response has been to increase prices. The approach followed by A&A has been one of pull rather than push. By adding value to its product lineup through high-profile licenses and playability, the supplier hopes to pull operators up to higher price points.

"The majority of products we have today in our lineup for 2" are designed for 75¢ or $1," said Brilliant. "And we see that percentage increasing over time. In the future, 2" capsules for 50¢ will be history."

Although Brilliant and industry experts see the eventual demise of 2" capsuled toys vending at 50¢, they know the price point still has some turns left. That said, A&A continues to provide mixes capable of vending for 50¢ for operators who are in the midst of making the transition, or who remain stubbornly resistant to the switch. However, many in the industry emphasize that higher price points are inevitable.

For operators, what remains is the challenge of switching over. During the last major pricing increase, nearly 20 years ago, operators moved from 25¢ up to 50¢ with some reluctance. Then, as now, suppliers stepped up to provide high-perceived-value merchandise. Likewise, the strategies operators adopted for the transition proved a key element in determining whether they remained profitable.